Now that Federal student loan payments will resume in the fall, now is the time to plan ahead for the October deadline. The steps below are a guide and not applicable to every situation.
- Assess Financial Situation
- Create a budget
- Prioritize payments
- Communicate with lender
- Automate payments
- Stay disciplined
- Assess your financial situation: Take a comprehensive look at your overall financial picture. Evaluate your income, expenses, and other financial obligations to determine how much you can realistically afford to allocate towards your loan repayment.
- Create a budget: Develop a budget that outlines your income, expenses, and savings goals. Allocate a portion of your income to cover the loan repayment while ensuring you can meet your other financial obligations. A budget can help you manage your finances effectively and ensure you have a plan for making regular loan payments.
- Prioritize payments: If you have multiple loans or debts, prioritize them based on factors such as interest rates, repayment terms, and potential penalties. While there are multiple strategies, allocating more funds towards higher-interest debts while making minimum payments on other loans is a popular method. By prioritizing payments, you can focus on clearing high-cost debts first and then tackle other obligations.
- Communicate with the lender: Reach out to your lender and inform them of your intention to resume loan repayments. It’s important to maintain open communication with the lender and keep them informed about your financial situation. Discuss the available options for repayment, such as those below:
- Repayment Plan: The lender may allow you to resume regular payments and spread out the missed payments over a specific period. This could be in the form of higher monthly payments or smaller payments by extending the loan term.
- Lump Sum Payment: If you can afford it, you may have the option to make a one-time lump sum payment to cover the missed payments and bring your loan up to date.
- Loan Modification: The lender might offer to modify the terms of your loan, such as reducing the interest rate, extending the loan term, or changing the repayment structure, to make the payments more manageable for you.
- Refinance: Depending on the type of loan you have, you may be able to refinance it with a new loan that combines the missed payments with your existing balance. This could potentially lower your monthly payments or provide more favorable terms.
- Deferment or Forbearance: If your financial situation has not improved or you’re facing continued hardship, you may be eligible for an extended period of deferment or forbearance, which temporarily suspends or reduces your payments. If you are still in school, this is a popular option.
- Automate payments: Consider setting up automatic payments or direct debits to ensure that your loan payments are made on time. This can help you avoid late fees, penalties, and potential damage to your credit score. Automating payments can also provide peace of mind by ensuring that you don’t miss any payments. With some lenders, borrowers who automate payments may receive a 0.25% discount.
- Stay disciplined and consistent: Make a commitment to stay on track with your loan repayment plan. Stick to your budget, avoid unnecessary expenses, and make timely payments. Consistency and discipline are crucial for successfully repaying your loan and reducing your debt over time.
Please note that rising interest rates can impact the cost of borrowing and refinancing. When considering that option, it’s important to carefully evaluate the potential costs and benefits.